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This weekend, financial writer and investor James Altucher published a controversial article, The Internet Is Dead (As An Investment), igniting a debate in the financial blogosphere by saying "...run for the hills when it comes to advising clients to invest in the Internet. The days of infinite margins, 1,000% productivity gains and growth of market throughout the universe are long over. Internet companies now should be treated, at best, like utility companies that get bought at about 10 times earnings and sold at 13 times earnings."It's an interesting point of view from someone so heavily invested in this space. (Altucher is an investor and partner in Social Leverage that funds Web businesses including Bit.ly, Stocktwits, Tweetdeck and Ticketfly)
Fred Wilson responded on his blog with a post entitled, The Internet Is Alive And Well (As An Investment)
saying "We (my partners and I at Union Square Ventures) think the Internet is one of those transformative technologies that changes everything."
This blogger, money manager, and tech expert dealing with larger investments (than the average investor) through his firm Union Square Ventures can afford to dabble in multiple emerging Internet entities and expresses his positive view in a comment below his blog post, "I don't think the "easy money" has yet been made. The easy money will be made when the sector is well understood and all of these stocks become blue chips".
Altucher, the antagonist in this Internet battle, seemed to turn against his once optimistic view on Internet investing saying "Investment is about risk versus reward and the Internet for the past 15 years of investing has been largely a crapshoot."
Like most hedge fund strategies, startup Internet investing currently sits in the high-risk category. The big winners may be sold at 10-30x investors' initial capital, but the latter end up becoming financial black holes. You need to understand the difference between investing in start-ups and venture capital (VC) and publicly-traded companies in the stock market.
While Wilson defends the infancy and immense growth of this sector (and the variety of his Web-based investments), Altucher speaks to the public and average long-term investors as to the difficulty of picking big stock winners and winning-business models in large publicly traded Internet and media stocks like Time Warner Inc. (NYSE: TWX) and News Corp. (NYSE: NWS).
Despite the similarities, they are arguing apples to oranges.
The interconnectedness here of Altucher and Wilson is also interesting, as they are both active VC's in the Internet startup niche. Altucher is also on the board of directors of Betaworks backed-Bit.ly, which is now the official URL shortener of Wilson-backed Twitter. Through Social Leverage, Altucher is also invested in two other services built on top of Twitter, StockTwits & Tweetdeck.
This all goes to show there is no consensus whatsoever as to where the Internet is headed nor how to invest in this space either. Is this still just the beginning of the Internet revolution (as the usage numbers suggest) or are these largely profit-and-revenue-lacking businesses (as their fundamentals suggest) all sizzle and no steak? Time will tell...
Altucher, the antagonist in this Internet battle, seemed to turn against his once optimistic view on Internet investing saying "Investment is about risk versus reward and the Internet for the past 15 years of investing has been largely a crapshoot."
Like most hedge fund strategies, startup Internet investing currently sits in the high-risk category. The big winners may be sold at 10-30x investors' initial capital, but the latter end up becoming financial black holes. You need to understand the difference between investing in start-ups and venture capital (VC) and publicly-traded companies in the stock market.
While Wilson defends the infancy and immense growth of this sector (and the variety of his Web-based investments), Altucher speaks to the public and average long-term investors as to the difficulty of picking big stock winners and winning-business models in large publicly traded Internet and media stocks like Time Warner Inc. (NYSE: TWX) and News Corp. (NYSE: NWS).
Despite the similarities, they are arguing apples to oranges.
The interconnectedness here of Altucher and Wilson is also interesting, as they are both active VC's in the Internet startup niche. Altucher is also on the board of directors of Betaworks backed-Bit.ly, which is now the official URL shortener of Wilson-backed Twitter. Through Social Leverage, Altucher is also invested in two other services built on top of Twitter, StockTwits & Tweetdeck.
This all goes to show there is no consensus whatsoever as to where the Internet is headed nor how to invest in this space either. Is this still just the beginning of the Internet revolution (as the usage numbers suggest) or are these largely profit-and-revenue-lacking businesses (as their fundamentals suggest) all sizzle and no steak? Time will tell...
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